The Korean War forged the link between U.S. defense spending and manufacturing, normalized government agencies controlling business, and helped develop Japan’s manufacturing capabilities.
By the late nineteenth century, Korea’s agrarian economy was intertwined with Japan’s, trading for food, manufactured goods, clothing, silver, and gold. In 1910, Japan annexed Korea through a treaty. Korea’s economy slowly changed from purely agrarian to include some manufacturing. Although the Japanese built roads and railroads and developed Korean industry, they treated Koreans as racial inferiors–particularly after militarists came to power during the 1930’s. After World War II, it was decided that Korea would be divided in half. Land above the thirty-eighth parallel would be supervised by the Soviet Union and that below the parallel by the United States. The two halves were to be reunited after a government was organized, a constitution written, and Korea stabilized for self-rule. This division of Korea caused protests all through the country.
In 1947, President Harry S. Truman handed control of southern Korea to the United Nations (U.N.), which called for unifying elections. The Soviets refused. South Korea was thereafter considered a separate country by the United Nations. That same year, North Korea printed its own currency. In the spring of 1948, Stalin secretly approved a North Korean constitution, which was immediately passed by the People’s Assembly, and the Democratic People’s Republic of Korea (DPRK, commonly known as North Korea) was born. North Korea proclaimed it had the single constitution for the entire peninsula and refused to recognize South Korea. South Koreans were labeled separatists working for the Americans. Kim became secretary general of North Korea. In October, Stalin sent North Korea an invitation to establish friendly relations with the Soviet Union.
North Korea began a rapid economic advance. Harsh rule limited corruption, and a great deal of money and supplies flowed into the country from other communist nations. In return, North Korea exported raw materials and what little manufactured goods it produced. The North bought gas and oil at reduced rates and had guaranteed markets for its goods in the Soviet Union. Its military received the latest Soviet equipment. The Soviets also sent industrial machinery with the assumption that a prosperous North Korea would in time pay them back.
In 1948, Syngman
By 1948, the Korean peninsula was home to two separate countries with vastly different economies and philosophies, both wholly reliant on sworn enemies who were commencing the Cold War. Border skirmishes between North Korean and South Korean forces began almost immediately. The ideological and economic split between the two countries widened rapidly. A North Korean army was quietly assembled in 1948, with permission from Moscow. As a soldier, Kim gave considerable attention to building a formidable, well-trained, politically indoctrinated military. However, he overestimated support for communism in the South. In 1949, the United States Army began leaving South Korea. By 1950, there were fewer than five hundred American advisers left in the country. Stalin agreed to an invasion of the South, which began on June 25, 1950. The next day, Kim accused South Korea of attacking the North.
Seoul fell to the communists in three days, and by August, 1950, 90 % of South Korea was occupied. In September, General Douglas MacArthur’s army landed at Inchon and drove North Korean forces back into the mountains near the Korean-Chinese border. In November, the Chinese attacked across this border with 300,000 men, taking over the majority of fighting from the North Koreans. The U.N. forces retreated southward a second time. By December, Kim was back in Pyongyang in an underground bunker as the city was being bombed into ruins by U.N. planes. In the spring of 1951, U.N. forces counterattacked the exhausted Chinese, pushed them northward up the peninsula, until the thirty-eighth parallel was once again the dividing line between the two Koreas. In March, 1953, Stalin died, and the Soviets and Chinese made immediate peace overtures. A cease-fire was signed in July, 1953, although South Korea refused to sign it.
After World War II, President
Good times ceased at the close of 1950. The Chinese entered the Korean War in November, and by December, the military budget increased to $50 billion (from a postwar low of $13.5 billion), and inflation soared to 7.9 %. Corporate taxes and income taxes were raised and credit tightened. Nonmilitary spending, including social programs, was slashed 28 %. Citizens and companies hoarded goods. In December, 1950, Truman declared a state of emergency, which gave him wide executive powers. His Economic Stabilization Agency immediately canceled price increases by Ford, General Motors, and Chrysler, and reduced worker pay raises to put the economy on a war footing. Charles E. Wilson, head of the
By 1951, the war had affected U.S. businesses by tightly connecting industries to military spending, placing the U.S. economy on a war footing that would go on for decades, making federal regulation of businesses an accepted practice, and establishing Japan as a future business competitor.
At the same time, federal regulation of the national economy and private business became more common. The Truman administration used nineteen war mobilization agencies to control the economy during the Korean War. The ODM managed and penalized private business. Government intervention to ensure economic stabilization became routine; federal agencies were created; and the size of U.S. bureaucracy increased.
The Korean War had the effect of making
Facts About Korea. Rev. ed. Elizabeth, N.J.: Hollyum, 1998. Great resource providing sections on history, the economy, and foreign relations. Halberstam, David. The Coldest Winter: America and the Korean War. New York: Hyperion, 2007. Last chapter provides consequences of the war. Hickman, Bert G. The Korean War and United States Economic Activity, 1950-1952. New York: National Bureau of Economic Research, 1955. A book of statistics and graphs that presents U.S. economic trends of the period. Martin, Bradley K. Under the Loving Care of the Fatherly Leader. New York: Thomas Dunne Books, 2004. The best text on North Korea and its economic ties with the Soviet Union. Pierpaoli, Paul G. Truman and Korea: The Political Culture of the Early Cold War. Columbia: University of Missouri Press, 1999. In-depth information on U.S. economics and society. _______. “Truman’s Other War: The Battle for the American Homefront, 1950-1953.” Organization of American Historians Magazine of History 14, no. 3 (Spring, 2000): 15-19. Short, excellent article on politics and business during the war.
Asian trade with the United States
Chinese trade with the United States
Japanese trade with the United States
Steel mill seizure of 1952